Anixter Has Never Looked Better

With Anixter International (NYSE: AXE) trading near its 52-week low, the company has never looked as attractive as it does now. Throw in significant insider ownership and recent insider buying and we have ourselves one fantastic value stock that would make even Ben Graham giddy.

Insider ownership and buyingSignificant insider ownership and, perhaps even more importantly, current insider buying are two very important criteria that I look for when evaluating a potential investment. Why? Because insider ownership aligns the interests of those in charge with shareholders' (Gordon Gekko, anyone?). And when insiders buy, they do so for only one reason: They believe the price of the stock will appreciate.

So how does communications-products maker Anixter rate for these two criteria? Let's take a look:

First off, Anixter insiders own more than 15% of the company. Not too shabby for a company that's worth nearly $1 billion. It's also noteworthy that Anixter chairman and billionaire investor Samuel Zell -- ranked by Forbes as the 68th-richest American, with a net worth of $5 billion -- is by far the largest insider owner (14% of the company). Zell, who is also the chairman of Covanta Holding Corp. (NYSE: CVA) , has been with Anixter since 1984 and chairman since 1985.

Secondly, Anixter insiders have bought just north of $300,000 worth of stock on the open market in the past month or so. In fact, $230,000 was by Matthew Zell, an Anixter director and Samuel's son. With Anixter shares trading at around $25 -- a third of their 52-week high -- I fully expect this trend to continue.

But high insider ownership does not necessarily bode well for a stock. Just ask anyone who has been invested in First Marblehead (NYSE: FMD) or Las Vegas Sands (NYSE: LVS) for the past year or so. For both of these stocks, insiders owned more than 30% of the shares, and have seen those shares drop by upward of 90%. It's critically important to utilize other criteria, such as an analysis of the company's valuation, to validate what the insiders have hinted at.

ValuationWhile the overall downturn in the economy played a significant role in the erosion of Anixter's stock, the company's latest quarterly report also hurt shares. Was this drop justified?

Well, if we take a look at Anixter's most recent quarterly filing, we find that net income slipped 4.8%, primarily because of slower sales growth and a strengthening dollar. On the upside, revenues were up 4% and earnings per share rose 4.6% from the year-ago quarter. So while net income was down, Anixter is increasing sales and compensating for lower income with a reduction in shares, which boosts earnings per share. Am I missing something here? Since when does a stock go down for boosting revenues and earnings per share? I could understand it if the stock was overvalued to begin with, but Anixter, whose shares now have a price-to-earnings ratio of 3.5, both was and is quite undervalued.

Furthermore, the strengthening of the dollar in the past few months is not a sustainable trend. In case you haven't noticed, the Fed's printing press has been going full speed for a long time now, and inflation is going to rear its ugly head very soon. When it does, exporters like Anixter will see sales take off, and shareholders will be very well rewarded; especially if they buy at such a depressed level.

To round out the valuation argument, here are the solid valuation metrics that Anixter currently sports:

Motley Fool CAPS community sentimentTo add a final piece to the puzzle, I want to tap the collective intelligence of the 120,000-member Motley Fool CAPS investor-intelligence community. Below are the rankings that our community has given Anixter:

Although nine out of every 10 community members who weighed in on Anixter are bullish, its three-star rating puts Anixter in the middle of the pack.

Foolish conclusionAnixter shares have taken a savage beating on Wall Street, but the company looks absolutely fantastic; from both a management and valuation perspective. So if you're a value investor at heart, and love to see a good bargain, maybe it's time to pick up some Anixter shares.

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